Twelve insurgents and two children have died during an assault by Afghan and international forces on a Taleban-held town, the Afghan defence ministry says.

British and Afghan troops exchanged intense gunfire with Taleban fighters defending their stronghold Musa Qala, the only major Afghan town they hold.

One British soldier was killed during the operation early on Saturday, the UK Ministry of Defence has said.

Daytime skirmishes followed a move on the town by US troops on Friday night.

The Taleban have held the town since February, when they retook it after British troops pulled out last year.

The twelve Taleban were killed during fighting, while the two children were killed when security forces clashed with Taleban travelling in a convoy with civilians, a spokesman for the Afghan defence ministry said.

The coalition has denied Taleban claims that several armoured vehicles had been destroyed.

But the UK Ministry of Defence has confirmed "with deep regret" that a soldier serving with the 2nd Battalion The Yorkshire Regiment has died in the operation.

Iconic town

The Taleban faced attack from the air on Saturday, as well as sustained assault on the ground as they defended positions which they had surrounded with minefields.

Afghan troops are playing a key part in the operation

British and Afghan ground forces have taken positions south, west and east of the town, while US troops were dropped from helicopters and fought on foot through the night.

UK Defence Minister Des Browne, who is in Kabul, said the town had taken on iconic importance.

The Taleban took it over in February, in contravention of a controversial deal brokered with tribal elders when British troops withdrew.

The morale of the Taleban is high... We will fight until the death

Mullah AhmadullahTaleban commander

It has since become the main centre of drugs trading in Afghanistan.

The assault is the first major operation where the new Afghan army is playing a leading role.

Mr Browne said Afghan forces would lead the re-taking of the town, and would also take the lead in holding it afterwards.

Our correspondent says the Afghan government recognises that it will have to offer the people of Musa Qala something better than it did before.

Wider attacks

Hundreds of local people fled after tribal elders were told of the attack and warning leaflets were dropped from the air.

Musa Jan, a resident of Musa Qala district, told the Associated Press that residents were trying to keep Taleban fighters out of their homes:

"If we let the Taleban in, Nato will bomb our homes."

"The morale of the Taleban is high... We will fight until the death," Taleban commander Mullah Ahmadullah told the Associated Press news agency.

Taleban fighters have been given orders to carry out attacks far more widely than Musa Qala to try to deflect attention, but Nato sources say they have contingency plans to deal with that.

Our correspondent says many of the Taleban fighters are expected to retreat when they believe the final assault is under way, but some, especially foreign fighters, may fight on and seek martyrdom.

In other developments:

The Taleban would not comment on a report by the chief of Helmand police that they had hanged a 12-year-old boy accused of spying for the British.

US-led forces said they had dropped a precision-guided bomb on a militant compound in Musa Qala district, killing several militants, including a commander.

Questions over deal

The agreement brokered over Musa Qala when British forces left was highly controversial.

It was portrayed at the time as a "win-win" situation, with the Taleban and British pull-out leaving local forces to assume control of local government.

British officers maintained it was a redeployment rather than a withdrawal; freeing them up to take on Taleban forces in other parts of Helmand.